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FTC says communities of color disproportionately affected by fraud
On October 15, the FTC released a staff report, Serving Communities of Color, that discusses the Commission’s enforcement and outreach efforts related to the impact of fraud on majority Black and Latino communities. The report details various studies and research. For example, one FTC study examined disparities related to payment methods received from consumers who live in communities of color compared to consumers who live in majority White communities. According to the study, consumers in communities of color more often reported a larger share of losing money when using payment methods that offer few legal protections—e.g. cash, cryptocurrency, money orders, and debit cards. In contrast, consumers living in majority White areas filed the largest share of reports about credit cards, which offer more robust fraud protection. Another study revealed that “different demographic populations reported different types of concerns at different rates,” with consumers living in majority Black communities filing a higher number of reports than consumers living in majority White communities related to credit bureaus, banks and lenders, used auto issues, and debt collection. According to FTC findings, consumers living in majority Latino communities also filed a larger share of reports about credit bureaus, banks and lenders, debt collection, auto issues and business opportunities. The report discusses, among other things, more than 25 enforcement actions where the FTC identified that the unlawful conduct either targeted or disproportionately affected communities of color. Examples include auto buying cases, for-profit colleges, student loan debt relief programs, prepaid card scams, fake Covid-19 products and services, business “opportunities” and pyramid schemes, payday lending, and credit and consumer reporting accuracy. The report also shares information about FTC outreach programs to consumers in these communities.
NYDFS requires flood insurance and diversity and inclusion training for insurance producers and public adjusters
On October 13, NYDFS announced that property/casualty insurance producers are required to take continuing education in flood insurance and diversity and inclusion. NYDFS is the first state regulator to mandate such requirements, which have been added to the state’s insurance regulations. “Requiring education on flood insurance and diversity and inclusion is not only timely, it is in the best interest of consumers,” acting Superintendent Adrienne A. Harris said. In addition, property/casualty insurance producers who sell flood insurance through the National Flood Insurance Program (NFIP) will be required to comply with the continuing education requirement, which according to the NYDFS announcement, is intended to ensure consumers receive accurate NFIP quotes and are not accidentally underinsured for flood damage. The requirement will assist “producers and adjusters to better service a diverse population of consumers and be culturally sensitive and aware when interacting with consumers and members of the public,” NYDFS stated.
Fed joins Central Bank Network for Indigenous Inclusion
On October 13, Federal Reserve Governor Lael Brainard announced that the Fed has joined the Central Bank Network for Indigenous Inclusion to foster continuing dialogue, research, and education and increase awareness of economic and financial issues and opportunities for Indigenous economies. The same day, Brainard spoke at Fed Listens: Roundtable with Oklahoma Tribal Leaders in Oklahoma City, Oklahoma, to discuss how the economic disparities experienced by tribal nations were exacerbated by the Covid-19 pandemic. She noted that in an effort to overcome such disparities, it will be important to identify and address barriers to financial inclusion. In addition, Brainard discussed how the Fed has a role to play in supporting economic growth and financial inclusion in Native communities, and that the Fed is collaborating with the other banking agencies to propose Community Reinvestment Act reforms that would increase financial inclusion and the availability of community development financing in underserved communities.
OCC focuses attention on board diversity and inclusion
On October 5, acting Comptroller of the Currency Michael J. Hsu stated the agency is exploring several options to improve bank board diversity and inclusion. Speaking during the Women in Housing & Finance Public Policy Luncheon, Hsu stated that the OCC is considering “encouraging banks to make it a practice to nominate or consider a diverse range of candidates or requiring institutions to either diversify their boards or explain why they have not.” Hsu cited examples such as the SEC’s approval of a new Nasdaq “diversify or explain” listing rule, as well as laws passed by the California legislature “requiring companies to have a certain number of female directors and directors from underrepresented communities.” In addition, the OCC is looking at ways other countries are approaching board diversity. “Without diverse leadership, banks and their regulators may develop blind spots or suffer from groupthink,” Hsu said. “These blind spots can lead to the kinds of nasty surprises that threaten safety and soundness—and possibly the financial sector as a whole. There is a growing body of empirical evidence that companies that address these blind spots by having diverse boards of directors have stronger earnings, more effective corporate governance, better reputations, and less litigation risk.” Hsu added that it is time to shift cultural expectations concerning diversity and inclusion and improve diversity transparency at banks, both at the executive and board levels.
NYDFS to start collecting and publishing board diversity data
On July 29, NYDFS announced in an industry letter that it will start collecting gender, racial, and ethnic board and management composition data as of December 31, 2019 and 2020 from state-regulated (i) banking institutions with over $100 million in assets; (ii) non-depository financial institutions with over $100 million in gross revenue; and (iii) entities authorized to engage in virtual currency business activities. Citing its authority under Banking Law 37(3) to “require any banking organization to make special reports to her at such times as she may prescribe,” the Superintendent stated NYDFS plans to collect data over late summer and will publicly publish findings on an aggregate basis in the first quarter of 2022. The results will be categorized by institution type and other relevant factors to “allow firms to assess where they stand relative to their peers” and hopefully “raise the bar for the entire industry.” In the future, the NYDFS would consider collecting and disclosing similar information, “including on a more granular basis.” The letter also set out the NYDFS’ expectation that institutions would (i) make the diversity of their leadership “a business priority and integrate it into their corporate governance”; (ii) “pay close attention to their talent pipeline of future diverse leaders, in addition to the diversity of its affiliates”; and (iii) “view diversity like other strategic priorities.”
Six largest U.S. banks testify on pandemic responses and banking programs
On May 27, the House Financial Services Committee held a hearing entitled “Holding Megabanks Accountable: An Update on Banking Practices, Programs and Policies.” During the hearing, chief executive officers from the six largest U.S. banks testified on their banks’ activities during the Covid-19 pandemic, as well as various issues related to safety and soundness, consumer protection, diversity and inclusion, risk management, compensation, climate risk, and the use of emerging technology. Several proposed bills containing provisions that would impact the banks if enacted were also discussed, including those that would (i) require the banks to publicly disclose and pay damages to harmed consumers within a short timeframe when more than 50,000 consumers are affected or potential remediation exceeds $10 million; and (ii) require federal regulators to design strategic plans to hold the banks accountable for compliance failures resulting in extensive consumer harm. The Committee’s memorandum focused on several areas discussed during the hearing including the following:
- Pandemic response. The Committee expressed concerns over allegations that some of the banks prioritized Paycheck Protection Program (PPP) loans for wealthier clients over smaller borrowers, including small and minority-owned businesses, and that certain banks allegedly inappropriately charged overdraft fees.
- Banking deserts. The Committee reported that the number of branches in the U.S. is down from ten years ago, noting that the existence of communities lacking adequate access to a bank branch makes it more difficult to reduce the number of unbanked and underbanked consumers.
- Diversity and inclusion. The Committee suggested that lack of diversity within the banks continues to be an issue, pointing out that shareholder proposals at certain banks for racial equality audits were not supported by the banks. However, the Committee noted that all six banks made commitments in 2020 to invest millions into supporting minority depository institutions and community development financial institutions to support communities of color during the pandemic.
- Fintech. The Committee discussed the increased use of artificial intelligence and machine learning to assist in digital banking, customer relations, fraud detection, and underwriting. Some of the banks, the Committee noted, have “acknowledged the competitive threat of fintech’s growth” and have asked regulators to “create a level playing field.” With respect to cryptocurrency custody services and the use of distributed ledger technology to perform payment activities, the Committee observed that while the banks do not yet provide these services, a few of them recently announced that they are considering the idea of offering funds to select investors allowing bitcoin ownership, while others may offer bitcoin investments in the near future.
Earlier in the week, the same CEOs discussed pandemic responses during the Senate Banking Committee’s hearing on the “Annual Oversight of Wall Street Firms.” The CEOs addressed challenges with building out digital platforms to facilitate PPP loan applications and forgiveness programs, as well as challenges to distributing funds quickly and in a manner that would prevent fraud from entering the system. The CEOs also emphasized their continued commitment to helping borrowers still facing financial hardships as federal foreclosure and eviction moratoriums begin to expire. One CEO noted during the hearing that his bank intends to continue to assist borrowers find loan modifications “irrespective of the deadline passing.”
DFPI Economic Equity Conference releases diversity survey results
On April 21, California’s Department of Financial Protection and Innovation (DFPI) hosted its first “Economic Equity Conference” presenting its Survey of Diversity in State Banking. The conference was designed to provide state financial leaders with strategies to enhance their “diversity, equity, and inclusion initiatives and consider their role in helping to close the racial wealth gap.” The conference featured the release of findings from a banking survey distributed to every state-chartered bank and credit union in October 2020. Some key takeaways of the report include:
- Responding financial institutions reported collecting employee and board member data on the following: (i) “60 percent collect ethnic and/or gender data;” (ii) “roughly 40 percent inquire about veteran/disability status”; (iii) “about 15 percent ask about ‘other’ categories, including marital status and age”; and (iv) “only 3 percent collect data on sexual orientation.”
- About half of responding financial institutions require diversity education or training for employees, but only 23 percent require diversity training for board members.
- Around 40 percent of financial institutions have “board-approved diversity, equity, and inclusion goals, with purposeful recruiting being the most common.”
- About 33 percent of responding institutions “track diversity, equity, and inclusion efforts, with reliance on self-assessment tools being the most common.”
- More than 75 percent of survey respondents “would like the DFPI to support diversity, equity, and inclusion efforts by providing education and training to licensees.”
NYDFS announces Statewide Office of Financial Inclusion and Empowerment
On April 13, NYDFS announced the new Statewide Office of Financial Inclusion and Empowerment, which is intended to meet the financial services needs of low- and middle-income New Yorkers and provide a “single-stop state resource” for consumers to access financial help. Superintended Linda A. Lacewell stated that the intention of the office is to “advance the Department’s strategic financial inclusion initiatives” and “pilot and develop policy initiatives designed to help further financial inclusion and empowerment.” Among other things, the new office will (i) maintain a centralized list of financial services counseling providers from across the state in the areas of housing, student loan, debt, and general financial literacy; (ii) coordinate state and local services intended to expand access to credit and opportunities for wealth building; (iii) “[i]ncubate new programs to expand access to safe and affordable banking services, credit and financial education,” and “coordinate public-private partnerships”; and (iv) foster the provision of high-quality, low-cost financial products across New York. Lacewell also announced that the Honorable Tremaine Wright will serve as the office’s first director. Wright, who will develop and implement the office’s policies and programs, was previously elected to the New York State Assembly where she was chair of New York State Black, Puerto Rican, Hispanic & Asian Legislative Caucus.
FDIC encourages banks to submit diversity self-assessments
On March 15, the FDIC’s Office of Minority and Women Inclusion (OMWI) encouraged FDIC-supervised financial institutions with 100 or more employees to submit voluntary self-assessments of their diversity policies and practices. OMWI’s diversity program will assess a financial institution’s diversity policies in the following areas: (i) organizational commitment; (ii) workforce profile and employment practices; (iii) procurement and business practices/supplier diversity; (iv) transparency of organizational diversity and inclusion; and (v) an entities’ self-assessment. OMWI noted that the self-assessment is not an examination requirement, and therefore will not impact a financial institution’s safety and soundness, consumer compliance, or Community Reinvestment Act examination ratings.
House hearing addresses diversity and inclusion accountability
On September 8, the House Financial Services Subcommittee on Diversity and Inclusion held a hearing entitled “Holding Financial Regulators Accountable for Diversity and Inclusion: Perspectives from the Offices of Minority and Women Inclusion.” Two panels consisting of Office of Minority and Women Inclusion directors and acting directors from the OCC, Federal Reserve Board, Federal Reserve Bank of New York, FDIC, NCUA, Treasury Department, SEC, FHFA, and CFPB answered questions posed by subcommittee members on strategies taken to promote diversity and inclusion (D&I) in the industries they regulate as well as within the agencies themselves. Panelists discussed in-house D&I areas of focus, such as improving minority recruitment and retention in the workforce and increasing diversity in leadership teams, vendor and contractor relationships, and hiring panels. Panelists also discussed efforts for mitigating unconscious bias. While the majority of the hearing focused on in-house strategies, some panelists also touched upon key steps their agencies are taking to promote D&I at regulated entities. For example, NCUA’s representative stated that it is committed to improving workforce diversity in the broader financial services sector and ensuring credit unions are offering products and services that reflect the communities they serve. FDIC’s representative noted that the agency is trying to get capital into the hands of minority small businesses, while Treasury’s representative discussed efforts taken during the Covid-19 pandemic to ensure minority depository institutions’ participation in the Paycheck Protection Program. Some of the panelists raised concerns about the low number of diversity self-assessments that lenders voluntarily provide to regulators, however they noted that there has been an increase in submissions over the past few years and that providing more information to the institutions has been beneficial. Subcommittee members also discussed proposed legislation to address D&I problems—including H.R 8160, the “Promoting Diversity and Inclusion in Banking Act,” which would require regulators to examine D&I at regulated entities to promote equality under the law.